Pop-In@Nordstrom celebrates The Smiley Company’s 50th anniversary – Photo: Nordstrom
Nordstrom is staffed, stocked and ready to serve as store traffic increases
Happy days are here again. Nordstrom pushed aside the gray cloud hovering over retail the past week with a first-quarter earnings report that shows luxury customers are still shopping despite rising prices — and that everyone else is looking for a deal on the right merchandise.
The retailer reported that net sales were up 18.7 percent year-over-year, exceeding its pre-pandemic performance, as its full line store sales jumped 23.5 percent and Nordstrom Rack’s sales grew by 10.3 percent. Digital sales were flat versus 2021 as the chain reported more customers returning to its physical locations.
CEO Erik Nordstrom said yesterday on the company’s earnings call that a return to occasions such as social engagements, travel and a return to work helped boost sales, as did customers who “reevaluated and refreshed their wardrobes.”
Mr. Nordstrom said unique product selection and outstanding customer service were the keys to the company’s success in the most recent quarter.
“We were staffed, well-stocked and ready to serve customers as store traffic increased. And our dedicated employees delivered an experience that was clearly reflected in our store-level customer satisfaction scores,” he said. “Putting the customer first is in our DNA, and our teams continue to exemplify that spirit this quarter. We’ve always believed that service and selling go together.”
Mr. Nordstrom said that expanded omnichannel capabilities are another key to the company’s performance.
“Customers clearly value our interconnected model, with order pickup comprising 10 percent of Nordstrom.com demand this quarter, an increase of 200 basis points versus the prior year. In Q2, we’ll continue to scale our market strategy by expanding next-day order pickup capabilities to over 60 additional Rack stores in our top 20 markets,” said Mr. Nordstrom.
In-store pickup customers “spend three and a half times more” than those who shop exclusively in Nordstrom’s stores, said Mr. Nordstrom. “Buy online pick up in store also remains our most profitable customer journey and one of our highest satisfaction customer experiences,” he added.
Nordstrom CFO Anne Bramman explained how the company is dealing with inflation.
“We took retail price increases this quarter in response to inflationary pressure and higher MSRP prices from our vendors. At Nordstrom Rack, through our strategic pricing actions, we raised prices on items with the lowest elasticities. Across both banners, we saw minimum unit impact from these pricing actions,” she said.
Discussion Questions
DISCUSSION QUESTIONS: Do you expect Nordstrom’s full-line and Rack stores to continue doing well through the rest of 2022, even if inflation persists? How do the company’s two banners stack up against rivals in the department store and off-price verticals?
Poll
Loading …BrainTrust
DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
Joan Treistman
President, The Treistman Group LLC
These are encouraging results for Nordstrom, but I’d still be very cautious. High inflation will continue to be a drag on consumer discretionary spending. It’s hard to say if the positive results were more a function of pent-up demand returning or something more systemic that Nordstrom is doing. Nordstrom still enjoys a unique place in the market with upscale, off-price at Rack stores, which I suspect will be key to delivering results.
I have two comments about this.
No one knows which of these two factors is more powerful, but it will be interesting to watch.
I have been a competitor of and a seller to Nordstrom over the course of many years in retail. I have been a student of Nordstrom for all of those years. And simply put, Nordstrom has been one of the best run retailers for many decades. Truly customer-centric. The way they describe their interweaving of online and in-store experiences is a huge lesson for the entire mall. The execution of customer-centricity might be a moving target, but Nordstrom keeps evolving and schooling us all on what that really means.
I totally agree with Jeff. Nordstrom is known for the best customer service in retail and customers love the special attention they receive in the store. Another thing that Nordstrom has going for it is a loyal base of customers that are not price sensitive. Nordstrom should weather the storm in style.
Nordstrom has always been a good value for their customers. Typical Nordstrom customers are not looking for the lowest price at their full-line stores. While not inexpensive merchandise, there is always the balance of choice, quality, and a reasonable price. If inflation continues to be an issue, the discount options at a Rack store become more appealing. This is just simple economics.
Nordstrom has figured out the importance of physical stores to boosting e-commerce sales and profitability. Elevating their use of in-store pickup instead of spending big on next-day delivery is smart, not only because of the cost savings on shipping but because of the increased likelihood that customers picking up will also make additional purchases.
The Nordstrom results suggest some tailwinds for the retailer: First, its full-line customers are less vulnerable to inflation than shoppers at Target or Kohl’s. Second, its Rack stores are more likely to gain share during inflationary or recessionary times.
But the real momentum behind Nordstrom’s results comes from changes in shopper behavior — or, better stated, a revival of pre-pandemic behavior. Some of this comes from “return to work” (even if only a few days per week) and some of it stems from social gatherings and travel — but mostly it reflects the simple desire to shop in an inviting brick-and-mortar store again.
Nordstrom’s results were strong. However they come after a very prolonged period of contraction so, on balance, Nordstrom has not traded as well as a lot of other players. That said, headwinds are now blowing more favorably for the full price business. Demand for occasion and work apparel is rising sharply – this plays to Nordstrom’s strengths. On top of this, the more affluent consumer is more insulated from – although not completely immune to – inflation. The off-price business is improving but it remains down on 2019 which is underperformance relative to the rest of the channel.
I’m sure there will be naysayers saying “yeah, but…“ But this is extraordinary news at just the right time. Yes there will always be headwinds. For all we know we’re headed towards World War III but in this moment what we needed to hear was that the specialty retailers were able to recapture the customer in a big way. Hats off to Nordstrom and all they’ve done to make this happen.
Nordstrom and The Rack are the perfect combination of serving their customer with right price, right product and at the right time. Off-price is booming and full-price luxury sales are on the rise.
Nordstrom’s secret sauce is putting their customer in the middle of their retail end-to-end. Customer service and produce obsessed brand ambassadors and an assortment that is driven by insights and creativity is what other retailers need to strive towards. It’s not magic. It’s common sense. Meeting the customer how and where they want to shop is critical and Nordstrom is a winner.
Wow. Just reading this Nordstrom article made me feel really good.
These two banners are going to continue to rise with these mindsets. Remember, the Nordstrom client is better armed to do business in and out of their stores. Aggressive, sharp and wickedly smart product selections that hit dead center of their core customer will prove them very smart, even in times of inflation and and economic slow down. This is just what retailers need to do, in their own ways.
Post-pandemic Nordstrom has learned to listen to their customers, and its BOPIS business is truly eye-opening. It’s as if customers shop online as an excuse to go “discover” more things to buy while they just happened to be in the store. It seems to lure customers back into the stores where their shopping instincts take it from there. Also encouraging for retail in general: they’re seeing customers return from online-only without skipping a beat. It would be interesting to see how the BOPIS and pure in-store purchases compare between Nordstrom and Nordstrom Rack stores. That would suggest if their customers are developing any inflationary spending habits.
I believe the full-line and off-price department store model works, and Nordstrom is positioned perfectly to take advantage of this volatile economy. Their upscale customers are happy with the product (and insulated from the cost) and their bargain shoppers with the price.
A retailer never will be comfortable hiding under a clothing rack. It takes courage, guts and self assurance in making hard and sometimes risky decisions. And actually, to a degree, they must throw out the uncertainty and move forward with confidence. After all, who knows their business any better than they do? Keep the attitude up Nordstrom.
The one part of this positive story that needs to be emphasized is Nordstrom’s performance with BOPIS. Their numbers (three and one-half times more spending) highlight the role of BOPIS. Customers enter the stores with empty carts and begin anew the shopping journey. The key for all retailers is to properly merchandise to BOPIS customers.
Nordstrom was well-positioned for growth and meeting the needs of the modern digital-first customer well before the pandemic hit. Their assortment curation, appealing in-store experiences, and overall focus on the customer have proven to be a winning strategy for the brand in the department store segment that has been facing challenges. They have pivoted their overall operating model to be customer-first, agile, and flexible, shifting to the latest customer preferences.
Another factor that helps drive engagement and growth is the overall investment by Nordstrom in the customer service space, both in the physical stores and digital platforms. Additionally, the Nordstrom customer sits within the area between luxury and the aspirational luxury space. These customer segments are relatively immune to economic factors such as recessions, inflationary periods, and other disruptions.
Nordstrom continues to honor its customers by paying attention to their needs. It has brought them success for a long time and will carry through this current inflation. Shoppers have gotten more savvy over the past decade and especially during the pandemic when examining options for purchases is smack dab in the middle of their smartphone. At the same time the pleasure (for many) of in-store shopping has not gone away and Nordstrom knows how to maximize that experience.
When I was at Nordstrom, I remember some of the meetings around the Local concept. I also remember how many people in the market said they were crazy for spending so much on a New York flagship. And then COVID hit.
In the same way Target has gotten a great deal of credit for realizing investment in experiential, physical retail is a pillar of success, Nordstrom deserves the exact same credit. What’s more, the core of their business is certainly somewhat recession-resistant (beauty up into “masspirational” luxury;). I’d expect them to do substantially better in the coming quarters than slightly down-market competitors. They’ve also be shifting to more of a concessions-based model over the last year or so, and while that won’t totally insulate them, it’ll certainly reduce some short-term risk.
Keep an eye on their half yearly sale (live now), and if foot traffic is up around holiday, I’d see those as indicators of their FY performance.
I’m baffled as to why this is being treated as a package deal: isn’t it possible one division might do well and the other not (or at least not as well)? Indeed that seems like a logical choice since the economic environments that full (and high) price retailers and discounters thrive in are often polar opposites.
My prediction: Nordstrom will be challenged. While the pandemic has ended — sort of — the shift toward casual clothing that it engendered endures; or we might say the pandemic accelerated an existing trend, but regardless of the history, the trend is away from the better apparel that is Nordstrom’s strength. As for the Rack, we’ll just have to see if the efforts at “turnaround” do in fact accomplish such.
People are definitely going out in person and adjusting to COVID risks. The question now is whether the wallet is willing given inflation and the cloud of economic uncertainty. The merchandising geared towards “revenge spending” may not match consumer sentiments; that’s what Nordstrom has to watch out for now.
IMO, the rest of 2022 is going to be good for Nordstrom since inflationary pressure is unlikely to affect sales of luxury brands. Moreover, Nordstrom’s assortment strategy helps its customer find clothes that represent their individuality. Omnichannel capabilities, along with these two factors are surely going to favor Nordstrom in the near future. Given its penetration in luxury and off-price luxury markets combined with an excellent targeting and assortment strategy will help Nordstrom hold its ground against competitors.